Hartford Questions

1.     What is a variable annuity?

From SEC website – “A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.”

The value of each annuity may differ and will vary depending on the investment option chosen. Variable annuities let you receive periodic payments for the rest of your life or the life of a designated beneficiary and the annuities are tax-deferred. They are suitable for investors looking for a long-term investment and those that are concerned they may outlive their other retirement streams of income.

2.     Why is Hartford Financial Services Group seeking permission to ask its variable-annuity owners to give up their guarantee of lifetime income streams? What is Hartford offering in exchange?

Hartford Financial Services Group is seeking to have its variable annuity owners give up their guarantee of lifetime income streams due to the substantial boost in reserves and capital they have had to keep in order to fulfill their obligations to the annuity holders during the 2008-09 financial crisis. The executives at Hartford believe exchanging these annuities will help to limit the company’s overall risk exposure in the long-term. They are offering to cash out the owners’ variable annuities at an amount greater than the current balance by transferring that amount to the account that they have invested in underlying stock and bond funds. 

3.     Who would benefit from accepting an offer from Hartford? Who would be made worse off from accepting an offer? Explain.

Those who are in poor health and do not expect to need to draw on lifetime income checks would consider accepting the offer from Hartford. Given that these people might not live as long, a larger payout earlier on would be more valuable given time value of money. Variable annuity owners who are likely to outlive their savings account and worry about their future income stream during retirement would not benefit from accepting this offer, as they are likely to need these funds in the future.